New for New York: Readable Tax Notices

By DAVID W. DUNLAP

Published: February 21, 1993

PROPERTY owners have been getting something unexpected from New York City -- tax assessment notices that they can understand.

"Dear Taxpayer: The Department of Finance estimates the value of your property as follows," the notice begins. What follows are not only the assessed value and an estimate of the tax bite for the coming fiscal year, but the market value that city assessors have placed on the property.

Until last year, the city released only assessed values, not the market-value estimates from which they were derived. That made it impossible for owners to understand the rationale behind the assessment and whether the city was being reasonable and fair in its taxation.

"Market value is a number that's on everybody's lips," said Carol O'Cleireacain, the Finance Commissioner. "They always know what the apartments around them have sold for, or the house up the block."

"The most important criterion in assessment is market value," said Martha E. Stark, assistant commissioner and special counsel at the Finance Department.

In the past, owners of office and apartment buildings could divide the assessed value by 0.45 to get some glimpse into what the assessor had in mind, assuming that the assessed value was 45 percent of market value, as it is supposed to be for such properties.

But the owners of one-, two- and three-family houses (known to the Finance Department as Class I properties) were left in the dark. Although assessed values in this category are supposed to be 8 percent of market value, they might be much less.

That is because the assessment of Class I properties cannot, by law, increase more than 6 percent annually or 20 percent over five years. In neighborhoods where market values rose quickly in the 1980's, assessed values did not keep pace. As a result, an assessment of $15,000 could apply to a house whose market value was $187,500. Or $250,000. Or $375,000. There was no way for homeowners to tell.

"They had to do algebraic computations," Ms. O'Cleireacain said, "and I felt this was not at all helpful in getting people to understand the tax. They felt there was no justice in the tax, that it wasn't linked to anything, that it was an abstract concept."

There was, indeed, something abstract about the way value was calculated, she said. Technocrats in the finance agency focused on adjusting the current assessed value in relation to previous assessed value, Ms. O'Cleireacain said, rather than relating assessed value to market prices.

"They didn't have a history of determining market value," Ms. O'Cleireacain said. "They didn't do their work that way."

Moreover, bureaucrats do not tend by nature to be eagerly forthcoming with the data they use to make decisions. "There's a certain comfort in keeping things a secret," Ms. Stark acknowledged. "It gives you the feeling you have a power over people that you don't necessarily have. But one thing Carol would say is, 'Why shouldn't we tell them?' "

One reason was a fear that logistical nightmares would result when homeowners got their first glimpse of how the city pegged market values. "The Tax Commission was a little concerned that people would be up in arms, come rushing in and clog the process," Ms. Stark said. "The Tax Commission said, 'Please don't publish market values, it will bring our operations to a halt.' "

But that did not happen, she said. While the number of homeowners applying for an assessment correction increased threefold, to 9,000 in 1992 from 3,000 in 1991, the owners of some 600,000 other one-, two- and three-family properties did not apply.

"Yes, they get angry perhaps about the level of the tax," Ms. O'Cleireacain said. "But I've had people all around the city come up to me and say, 'You got the market value right.' I said: 'Thank you. That means your taxes are right.' "

Not everyone believes the city hits the target. Patricia Dolan, president of the Queens Valley Homeowners Association in Kew Gardens Hills, said the concept of market-value disclosure was "excellent" and "by and large, a very useful feature."

"The problem," she said, "is that the real market value and the market value on the form have nothing to do with each other." As an example, she cited row houses on the south side of 73d Terrace that had been assigned higher market values than detached, one-family houses on the north side.

CO-OP and condominium owners maye also be surprised when they see the "market value" line on their notices. Their properties are treated as if they were rental buildings. By law, assessors cannot factor in the sales price of individual units. Instead, they calculate the estimated net income for the building, then apply a capitalization rate to determine what a buyer might pay.

That yields a "market value" for condominium and co-op units that may be anywhere from 35 to 65 percent of the amount for which they might sell, Ms. Stark said.

"You have to read this value as a piece of a comparable rental building," counseled Mary Ann Rothman, executive director of the Council of New York Cooperatives. "It shouldn't distress you from the point of view of, 'Oh my God, if this is all I can get for my apartment, I might as well kill myself.' "